Can a disclosure letter give rise to a misrepresentation claim?

What is a disclosure letter?

Provided by a seller to a buyer, a disclosure letter is an important element in any business sale or purchase transaction. The letter provides specific information regarding the target business and allows a seller to qualify any of the warranties being given in the purchasing contract, for example, a Share Purchase Agreement (SPA). A fair disclosure can protect a seller against a claim by the buyer where a warranty is not completely true.  However, if a disclosure is insufficient or incomplete, a buyer may be able to pursue a claim for breach of warranty. Still, it is an established principle that a warranty provided within a SPA will not automatically amount to an actionable representation but instead, will form a term in which the respective parties have agreed to be bound by (Idemitsu Kosan Co Ltd v Sumitomo Corp [2016] EWCH 1909 (Comm)).

However, the question remains as to whether a statement made within a disclosure letter could become an actionable representation.

Veranova Bidco LP v Johnson Matthey plc and others [2025] EWCH 707 (Comm) – a case summary.

After the completion of a share purchase transaction, a buyer made a claim for fraudulent misrepresentation due to alleged false statements made by the seller within a disclosure letter. According to the buyer, the statements were made fraudulently and ultimately enticed the buyer to enter into the SPA.

In response, the seller applied to the High Court for summary judgment or a strike out of the claim. The seller relied on previous case law, most notably Idemitsu Kosan Co Ltd, which established that contractual warranties were merely contractual promises and nothing more, and thus, were not actionable representations. The seller argued that a similar approach should be taken here, extending the legal principle confirmed by Idemitsu Kosan Co Ltd to cover that of disclosure letters. The seller argued that a disclosure letter cannot contain representations but instead acts to help negotiate and shape the warranties that a seller shall provide.

Any outcome?

At this point, it was not for the High Court to ascertain whether any misrepresentations were made, but rather, whether the buyer had a real prospect of success and had reasonable grounds to bring the claim, which if ruled in the buyer’s favour, would allow the claim to proceed to a full trial. The Deputy High Court Judge had been persuaded in the buyer’s favour.

Accordingly, the Deputy Judge concluded that there was no “rule” when deciphering what can or cannot amount to a representation, “save only that agreeing to provide a warranty will not, without more, amount to making a representation of fact” (Veranova Bidco LP). The primary purpose of a disclosure letter is to solidify the terms of a SPA, though, the Deputy Judge made it clear that this does not mean a disclosure letter cannot also have a secondary purpose – i.e. to make an actionable representation.

Why is this important?

The influence of Veranova Bidco LP is somewhat limited, seeming as the case relates to a decision on summary judgment and strike out, and so, the uncertainty surrounding disclosure letters and actionable representations still remains. Yet, Veranova Bidco LP provides us with something to think about. The mere fact that this case is now proceeding to a full trial reveals that sellers could be caught making misrepresentations within disclosure letters – whether deliberately or carelessly.

Moreover, remedies for misrepresentation can be more detrimental to sellers in comparison with remedies available for breach of warranties. With regards to the former, if a buyer succeeds in their claim, they may be entitled to more compensation or, if the misrepresentation is fraudulent, the buyer may be able to rescind the whole sale. As such, sellers may need to give more thought to the disclosures they make to ensure that such statements are indeed true, in order to avoid the damaging remedies available to buyers for misrepresentation.

The idea that statements made within disclosure letters may form actionable representations could become highly significant for both sellers and buyers, and thus, Veranova Bidco LP is certainly a case to watch.

Full judgment: Veranova Bidco LP v Johnson Matthey PLC & Ors [2025] EWHC 707 (Comm) (25 March 2025)